Home News Banks big home loan cashbacks mask attempts to rebuild margins

Banks big home loan cashbacks mask attempts to rebuild margins

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Real estate sales become anemic as interest rates rise and home prices fall.

Aaron Wood / Staff

Real estate sales become anemic as interest rates rise and home prices fall.

opinion: It is called the “Cashback War”.

Some banks offer large amounts of cash back after people take out new loans with them.

BNZ offers Up to $ 20,000 cash backAnd state-owned Kiwibank up to $ 10,000.. Westpac offers a lottery with five prizes of $ 50,000.

These are limited-time offers for new borrowers, and mortgage brokers see them as part of a strategy that banks must restructure their mortgage margins.

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Cashback was generally in the realm of lower-tier car lenders. These were high-value car loans that the lender promised to “give” both the loan to the borrower and cashback to use for whatever they liked.

There is no such thing as free money, and in my book this was a pure exploitation of people in desperate need of cash.

In contrast, banks have traditionally agreed to pay some of the homebuyer’s costs, such as statutory fees, but these new cashback offers are different, mortgage brokers say. say.

supply

65 years is the worst time for New Zealand’s first homebuyers.

Mortgage cashback is the money a bank pays to a borrower after withdrawing a loan to buy a place. It has nothing to do with their purchase costs. This is an incentive for new borrowers to join the bank making the offer.

Mortgage brokers see cashback as a cunning marketing wheeze that contributes to the bank’s mission to increase the bank’s rate of return on loans.

Bank margin Margins have been restructured since 2020 and 2021, as the Reserve Bank of New Zealand’s Te Putea Matua figures show, but 2018 and 2019 are higher than they are today.

Cashback is designed to attract new borrowers and low-risk borrowers.

Banks are currently suspending lending to people with less than 20% deposits, according to one broker.

BNZ and Kiwibank cashbacks are limited to borrowers with an equity of 20% or higher.

This has made cashback a gift for those who make money, such as selling one home and buying another, or switching a high-value mortgage from one bank to another.

Not very useful for first home buyers who do not have access to mom and dad’s banks.

Brokers believe that the cost of mortgage cashback is effectively distributed by banks to all mortgage borrowers.

This is because banks are reluctant to give current borrowers discount rates on mortgages.

Previously, “good” borrowers with a little bargaining skills could get banks to offer mortgage discounts. For example, I was able to knock out 25 basis points from a fixed term interest rate and get this discount every time. Some of their loans are now being fixed.

Nowadays, banks will cut interest rates to match the rivals of the lowest major banks if they think the borrower can really stick to another bank.

But that’s about it, they’re ready to negotiate a floating rate loan, but it’s still expensive.

That’s why brokers and economists see cashback as part of their margin-building strategy and help curb future profit growth.

The government was forced to make nasty adjustments to new responsible lending regulations when it became clear that it made it difficult for regular borrowers to get loans.

Robert Kitchen / Staff

The government was forced to make nasty adjustments to new responsible lending regulations when it became clear that it made it difficult for regular borrowers to get loans.

The government may have made this strategy possible.

Switching loans between banks has become more demanding. Since the government strengthened responsible lending laws.. Not many people switch banks, coupled with those who crouch in the face of higher costs and more nervous economic outlook.

Indeed, brokers are doing less of this switching business than they did in the good old days before Covid and the fall in home prices.

Like other special offers to new borrowers, such as low interest rate, interest-free “balance transfer” offers on credit cards, cashback leaves a sour taste in the mouth of existing bank borrowers.

A lot of people Fix some of their loans At a much higher interest rate than they are paying.

They have been enriching their banks over the years and may be allowed to be frustrated to see cash “returned” to preferential new borrowers.

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